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In November of 2009 I posted a commentary on the Supply Chain Matters blog noting the special significance of Geely Holding Group’s attempts to acquire Volvo.  I noted that in my view, this would be a very shrewd move by Geely, for a number of business, marketing and supply chain related perspectives.

After months of drawn out speculation a deal has now concluded and the $1.8 billion acquisition of Volvo, previously owned by Ford Motor Company, was consummated this week by Geely. The business media has been providing various different perspectives regarding this acquisition.  A Wall Street Journal article (paid subscription may be required) notes that Geely Chairmen Li Shufu plans ” to leverage relatively cheap labor costs in China to radically slash Volvo’s costs in areas of product development and manufacturing. At the same time, he hopes to use Volvo’s upscale reputation to boost sales by the brand in China. “ Articles in the European focused Financial Times call attention to rather dismal track records when one foreign buyer buys another, particularly when a noted European brand is involved.  The Times further notes that on paper, the deal makes good business sense but Chinese car makers still trail the world in technology, development, service and world class quality.

Regardless of speculation, I believe that Geely’s move can still be business savvy.  Let’s once again review the perspectives.  First, Geely now inherits a well respected global brand in the premium automotive category, one with a stellar reputation for building solid and rather safe automobiles.  Volvo’s engineering and safety expertise helped Ford refine its vehicle line-up, and Geely’s management should encourage Volvo’s management teams to assist in refining Geely’s product lineup, especially in the context of developing world-class export vehicles. This acquisition of Volvo can also place Geely directly into the competitive race for attracting upscale auto buyers in China.

Second, Geely inherits both a manufacturing presence in Europe, but also distribution channels in both Europe and North America to not only provide Volvos, but future Geely brand vehicles as well.  Volvo, in-turn, can gain the benefit of Geely’s knowledge of the Chinese automotive market and channels of distribution.   Geely has ambitious plans to make Volvo’s more appealing to the most discriminating and wealthy Chinese buyers. The acquisition of Volvo can place Geely directly into this competitive race for attracting evolving upscale auto buyers in China. In the short term however, Geely needs to quickly figure out how to move a lot of finished Volvo’s sitting on dealer lots.

The third benefit lies in deployment of a high-volume global production and efficiency value-chain for producing Volvo vehicles.  Geely’s plans call for building a new Volvo plant in China capable of producing 300,000 vehicles per year, and also leverage China’s advantages in material and labor costs. Chairmen Shufu has laid out an aggressive plan to nearly double annual global sales to over a million vehicles n the next five years. The company further indicates that it will maintain Volvo’s current manufacturing capacity in Europe to distribute to both European and U.S. markets.  My speculation is that once Geeley’s Chinese manufacturing and Chinese value-chain capabilities are ramped-up and matured, that facility can be the focal point for exporting Volvo’s to other Asian countries. If Geely’s management is smart, they should seek to leverage a worldwide supply chain business planning and responsiveness capability.

Finally Geeley now acquires an outlet to introduce and market autos in the U.S. without having to overcome U.S. government or consumer perceptions regarding Chinese auto companies taking over from the U.S. big three.  Consumers tend to have short memories, and Volvo buyers are a loyal group.  If Geeley can maintain Volvo’s engineering and safety standards, build in additional quality, and produce in a far more efficient manner, than consumers will overcome their political objections.  That’s exactly what happened with every other foreign based brand that successfully entered the U.S. market.

Geeley’s plans are both bold and shrewd, and could provide strategic advantages from a business and value-chain perspective.  But the potential for risk and slip-ups also exist.  The current ongoing quality crisis effecting Toyota is an important learning for Geely.  Expand too fast, beyond the capabilities of consistent quality and market responsiveness, and your brand may be in jeopardy. Shielding decision making input within a closed Asian based hierarchy of management culture is also a risk.

Future developments will tell the complete story of whether all of the strategy and operational execution will fall into place for Geely. 

What’s your view?  Can Geely rise to the challenge for being a world-class  automotive manufacturer by balancing the capabilities of Volvo?

Bob Ferrari

Supply Chain professionals, like it or not, remain in an environment of high volatility.  Need some proof, consider the following…




A mere three months ago in December of 2009, I penned commentary on the Supply Chain Matters blog regarding the existence of euphoria among U.S. manufacturers.  At the time, a Washington Post article reported that the weak U.S. dollar was helping U.S. manufacturers to win back business previously lost to other global competitors.  This was certainly positive and uplifting news as these U.S. manufacturers approached 2010, but I stressed a cautionary note to the conclusions of this article.  While the economics of product cost, quality, inventory and logistics tradeoffs shifted more toward U.S. manufacturing sourcing, the political dynamics of today’s world economy must always be factored.




This week, an article in the Financial Times (free sign-up preview account required) makes note that the recent fall in the value of the euro has given the eurozone economic recovery a new lease on life.  The article notes that German manufacturing output, thus far, in March has increased at the fastest pace since the mid-1990’s, and business confidence in Germany has jumped to its highest level in the past two years. Germany’s export orders are increasing at record speed, and the European composite purchasing manager index rose from 53.7 to 55.5 in February, its eighth consecutive monthly increase. The German global export manufacturing machine once again has been primed.




If you had read either of these press reports in isolation, or without context, the conclusions would in some cases influence senior managers to believe that a specific regional economy was on the road to post-recessionary recovery.  If both are placed in context of time, than perhaps the conclusion is that the geopolitical swings in currency rates are occurring at a much higher rate. The interplay of China, Germany and the North and South American economies are all swinging back and forth motion like a pendulum.




The reality for procurement sourcing and product planning teams is that global volatility is an unfortunate given in the current post-recessionary world of ongoing uncertainty. Reacting to current snapshots in time, driven by today’s rapid shifts in currency or energy markets will often change the economics of sourcing, and we need to be cautious about various options of response.   A sudden reaction to a currency or energy market shift in time may not prove to be prudent, since as we now can observe, today’s markets change rapidly. Conversely, not responding appropriately to a longer-tern structural economic shift could ultimately be financially costly.




In the long term, most manufacturers, large or small, are better off by being recognized for product and service innovation as opposed to being evaluated as the lowest-cost producer. Customers often want to establish long-term supplier relationship with innovative and value-added suppliers, suppliers that can be extensions of a long-term business relationship. These same customers, however, need to also navigate their business models to seek any means to drive more top line sales growth in 2010, and/or drive more procurement cost savings. Thus they will seek out an opportunistic relationship with this year’s lowest cost provider to exploit sales expansion plans or create product promotional opportunities in the market.




Given this commentary, you may well ask the obvious question; How will we sort out all of this uncertainty in our organization’s business planning?




My advice to is to invest in supply chain intelligence and advanced analytical capabilities, tools that focus on supporting more informed decisions that can have multiple alternatives or economic impacts. The new table stakes for firms is the need to quickly assess the impacts of rapid changes in markets and their implications to short and longer-term supply and demand plans. If a customer approaches your sales teams with an unplanned buy, how will your firm rapidly respond toward filling that requirement?  Conversely, if sudden changes in the economy cause a customer to cancel existing pipeline orders, what actions can be taken to buffer the financial impact of excess inventory or production capacity?




In an environment of volatility and rapid change, effective planning is more about the ability to quantify the impact of various changed business scenarios, rather than a summarization of what has occurred in the past.  Today, markets are changing very quickly and timely response capabilities are indeed what will differentiate the survivors.




Bob Ferrari

A little over nine months ago, Palm Inc. launched its new Pre smartphone on the weekend just prior to Apple’s pending iPhone release.  The Palm Pre release was supported with lots of marketing fanfare from both Palm and Sprint Nextel, its prime distribution partner at the time, to attract consumer and media interest before Apple’s announcement.



At the time, Supply Chain Matters provided perspective amid all of the Internet commentary that was buzzing about Palm’s attempts to revitalize its business. We noted the importance of Palm’s supply chain management team in supporting ramp-up activities to meet what was expected to be high consumer demand. The goal at that time was to ramp-up supply chain capability in order to support one million units in sales by the second half of 2009. We further noted how product marketing or sales can sometimes trump the readiness of the overall supply chain network’s capabilities to deliver high volumes during the critical new product introduction phase when consumer and market impressions are at their height. It was assumed that a new senior management team with experience from companies such as Apple and Nokia would be sensitive to the needs of responsive alignment of supply with anticipated demand.



Last week, Palm reported its quarterly financial results and the results were not well received by the Wall Street community.  The company admitted that the Palm Pre and Palm Pixi smartphones are not selling as well as was hoped. Palm’s CEO was quoted in many news reports as indicating that he found the company’s results “deeply disappointing”.  According to an article posted on, the company shipped 960,000 phones to stores and distributors in the latest quarter, which closely matches Palm’s original goal of supporting one million units per quarter. However, as the article points out, consumers bought only 408,000 units, leaving a whopping 552,000 units in remaining inventory waiting to be sold.  Many observers note that this inventory overhang adds more drag effect for Palm hopes to penetrate the market and spur further sales and profitability, not to mention that distributors will now seek incentives to move this inventory.



I’m sure that various members of this community can share important perspectives on whether Palm’s supply chain teams did all they could to support the company’s business goals, and whether such excessive inventory was indeed the fault of supply chain. I would, as many of you, look for the existence of a viable cross-functional sales and operations planning (S&OP) process that monitored ongoing sales levels contrasted with inbound and available inventory supply. Senior executive involvement in the process would be a further test. But as I Process-Technology-People: What is the Real Problem Thwarting Supply Chain Performance?, the dimensions of S&OP include factoring the dimensions of process, process and technology.  There is however a rather interesting nugget of information included in the article noted above. It notes that “Palm recognizes most of its revenue when phones are received by distributors, not when devices are sold to consumers.”  In my mind, this raises an even more important discussion, that being the overall alignment of corporate goals.  We often note than an effective S&OP process will align planning to overall desired business results. That would include business, product or functional goals. Often this alignment can be challenging. If in Palm’s case, the S&OP process was driven by a primary business goal of achievement of quarterly revenue, than the team may well have achieved its objective. If on the other hand, the S&OP team included senior executive participation, was there a counterbalancing perspective regarding the potential impact of excessive inventory build-up?  Did the process have the analysis capabilities to articulate this impact and was that capability brought forward in the process?



These are interesting questions to which Palm teams must respond.  As I noted over nine months ago, the ongoing developments at Palm may provide yet another interesting case study and associated learning in the critical importance of goal alignment with many facets of supply chain responsiveness.



What about your firm or organization?  Is senior management an active participant? Does S&OP analysis including a balancing of strategic business, tactical and operational goals? Is analysis focused on a range of potential outcomes that can support key decision-making?



Bob Ferrari

There has been an interesting thread of recent blog commentary within the Community about the importance for firms to consider broader adoption of Sales and Operations Planning (S&OP) and the important benefit in gaining alignment across different functions in demand and supply planning.  Trevor Miles of Kinaxis added some interesting and thought provoking commentary noting that Old-school organizational power structures thwart business performance: The old dogs need to learn new trickssuch alignment. Trevor’s posting, although a bit lengthy, grounds us to the realities of how far access and power to utilize information has affected or is thwarting both the flow and timeliness of information. 



I myself sometimes have to ground my thinking in the fact that it was in the not so distant past that senior managers would not access or read their own email, let alone access a supply chain planning system to view the current dashboard of key performance indicators of the business. A re-run or net-change of MRP or supply chain planning systems meant waiting until the weekend when a long re-calculation run could be scheduled by the IT team.  Analysts still utilize large spreadsheets to analyze and disseminate information either because it is the only user-friendly tool to get the job done, or because they understand that ‘information equals organizational power”. Managers are thus ‘conditioned’ to a notion that decisions take time and require a lot of patience and cross-functional interchange.  Meanwhile, the complexities of supply chain processes and overall pace of business have significantly accelerated, often times beyond the ability or the pace of internal decision-making processes grounded in this past. As soon as one analysis is completed, it is suddenly out of date.



Readers in the community can note that I, along with other bloggers have been commenting upon the benefits of a new era of forward looking analytical applications that can support many forms of scenario-based or what-if planning.  Yet, these tools are only effective if users have the comfort and means to utilize these systems, and that certainly includes all levels of management. The implication of organizational change management is when the organization, management and people realize that there will be both professional and personal benefit to the change.



How successful has your organization been in encouraging and supporting changed organizational skills that encourage more timely information analysis and decision-making?



Is an S&OP process really successful without process, people and technology change?



What learning or pointers can you share with the community?



Bob Ferrari

Dan Gilmore, editor of Supply Chain Digest recently wrote a column about the concept of the probability of supply chain ROI.  In a nutshell, Dan’s friend, Doug Hubbard has come up with a concept to calculate project ROI, not as just a single number, but rather a range of potential outcomes that can be communicated to management. Dan’s premise, in his column, is that the way most of us have thought about calculating ROI on major supply chain process or technology enablement projects as a finite number is simply all wrong.  Our community, in essence, should be communicating ROI as a probability curve demonstrating a probable range of outcomes.



In all deference to Dan and his fried Doug, sounds great in theory, but not so sure about the practicality. How many of us have had to deal with hard-headed CFO’s or CEO’s in clearly articulating the benefits of a major supply chain initiative, particularly if it involves a rather large investment in enterprise software? Placing one’s reputation or management bonus on the line relative to achieving an ROI metric is daunting, and the process tends to drive to specificity really fast, I wonder how these same executives would respond to a “range of ROI’s”.  CFO’s seek clarity in numbers and results, not probabilities. No doubt, incidents of investing fairly large sums of money in multi-year ERP or enterprise software implementation initiatives have soured the CFO view of ‘range of probabilities on return’.



A better and less painful approach, I feel, is to partition projects in measurable, specific phases, where project scope and outcomes become much more measurable.  The end-goal can remain a long-term transformation of a supply chain or supplier management processes, but phasing the implementation into a series of measurable, self-funding, pay-as-you-go savings provides far more credibility in the merits of a project. In my consulting and briefings, I continue to observe that more companies and organizations, even those who are implementing components of supply chain functionality within a broad ERP backbone, have found that limiting scope of implementation to what can reasonably be managed in 6-12 week results has been far more credible, especially in today’s uncertain business environments.



The management adage of results speak louder than words are as true today as they always were.  Managing scope and implementation to a definitive, measurable time period where project savings have to fund subsequent phases are a much more creditable approach when justifying ROI with senior management.  Even when CEO’s become more confident with the need to invest in renewed supply chain capabilities, they have now discovered that self-funding projects provide far more meaningful results for the business. This also helps to explain why technology that has faster implementation and savings phases has become more attractive in various industry settings today.



What about your organization? Have you found that limiting scope and emphasizing pay-as-you-go savings provide a more meaningful means for determining ROI of projects?



Bob Ferrari

Over these past months I’ve penned a number of Supply Chain Matters commentaries concerning Sony Corporation’s massive restructuring across its electronics related global supply chains. In my Update on Sony's Supply Chain Challenges and Cost Reduction Needs, we noted how this company had cut costs by $3.63 billion USD in a relatively short period of time.  Sony closed 20% of its manufacturing plants, eliminated 20,000 jobs and targeted additional supply chain cost reductions.  The most interesting part of this story thus far has been that most of these radical cuts, by Sony management’s own admission, have been primarily driven from top-down management directives.  There was a further acknowledgement that no business processes or system changes have been involved to this point.




An article in yesterday’s Wall Street Journal (paid subscription may be required) reflects yet another supply chain challenge. Sony announced that its television business, which has lost money for six straight years, will shift to an aggressive attack mode in the coming fiscal year in order to recapture lost market share to Samsung and LG Electronics. How aggressive? The article notes about a 70% ramp-up in production, to exceed 25 million units in the upcoming fiscal year. Once more, the company wants to gain the upper hand in the emerging 3-D television segment, thus one can further speculate that the planned ramp-up will include a lot of new 3-D models to make their market introduction.




The WSJ article specifically cites Yoshihisa Ishida, the architect of Sony’s prior supply chain cost cutting efforts, as the person who will lead this new ramp-up challenge in the television business.  He is described in the article as a no-nonsense cost-cutter who ran Sony’s personal computer business.




In previous commentary, I noted that the real work of supply chain transformation still remains a work-in-process for Sony.  I must now admit, that might have been a heck of an understatement, given these new ramp-up challenges.




I once worked for a very talented CIO in charge of all U.S. IT operations who was challenged by the existing senior management to reduce overall IT costs by at least 25%, and at the same time insure that existing up-time KPI’s remained in the high nineties.  He communicated that challenge to his senior management peers as the following: What you are really asking us to do is the equivalent of attempting to change one of the engines of a 747 aircraft while it is still flying. Somehow, that same phrase came back to me when I reflected on Sony’s new challenges.




Mr. Ishida and his supply chain team indeed have a significant challenge in light of the need to complete a supply chain restructuring while insuring that the television business meets very aggressive market ramp-up goals.  One would hope that this team can quickly address business process and system changes, particularly in the area of broad supply chain visibility and responsiveness. This is a story that the supply chain community as a whole should keep eyes upon.



If you were asked, what advice would you render to Sony's SCM team?




Bob Ferrari

Readers of the Supply Chain Matters blog often know how often we have been highlighting incidents of supply chain risk related to product recalls originating from contamination or bogus materials.  The incidents have been far-reaching, ranging from the ongoing massive recall incident What Went Wrong at Toyota- Growth, Scale or Lack of Timely Informationto numerous incidents of contaminated or bogus products entering various industry supply chains.  One common aspect of many of these incidents is when certain products originating from specific suppliers are the source of the contamination and the effects rapidly cascade to other multiple product-related supply chains.  Past incidents include peanut products, pistachios, drug compounds and more recently cracked pepper that coated certain salami products.



The most recent real-time incident involves the suspected contamination of hydrolyzed vegetable protein (HVP), which is an ingredient incorporated in many food products.  On March 4th, the New York Times reported that thousands of processed foods, from soups to hot dogs, contain this flavoring ingredient that is suspected of being contaminated with salmonella.  The specific supplier named was Basic Food Flavors of Las Vegas Nevada, and the original discovery was made by a customer upstream in the food processing supply chain. The U.S. Food and Drug Administration (FDA) inspected the Basic Foods plant in February and uncovered salmonella in the company’s processing equipment, which led the company to voluntarily recall all of its HVP product produced since September 17, 2009, over five months worth of production.



The article notes that most affected products are safe because cooking, either before or after sale, eliminates the risk.  But that in no way eliminates the risk if your particular product does not completely meet that cooked criteria, or erring more on the side of caution prevails in terms of risk to the consumer.  As even more real-time evidence to this situation, yesterday Procter and Gamble voluntarily recalled two specific flavors of its very popular Pringles potato chip product because they contained this same suspect HVP ingredient. I have no doubt that there may be other recall announcements coming.



Once again, the important take-away reinforced by these ongoing incidents is the critical importance that both supply chain traceability and risk mitigation have become as required process capabilities, and how important technology helps in supporting such capabilities. An overdependence of regulatory agencies to discover and track the actual sourcing of contamination often implies that the supply chain has already been impacted by an incident.  This mandates the need to be able to quickly and efficiently trace where certain products were manufactured, and to which customers or retail outlets they were distributed.  It also implies the ability to be able to quantify the overall risk involved and the ability to quickly quantify, assess and implement risk mitigation plans.  Having a supply chain planning system that can perform what-if analysis and quickly re-plan for alternative ingredients is rather fundamental, as well.



Our community often looks to P&G as the benchmark in world class supply chain capability.  It should therefore be no surprise that within days of the original announcement, P&G was able to trace what specific end-products were or were not at risk, what lot numbers were involved, and was able to transmit important information to consumers on a dedicated web site. 



Successful risk mitigation occurs when proper planning, process, and information technology enablement are in place.  Too often, the negative effects come when they are not in place.



Bob Ferrari

You may or may not want to endure yet another blog commentary related to Toyota’s ongoing crisis of product recalls and eroding customer confidence. However, judging from readership of Can Lean Manufacturing Backfire? the discussion of what really went wrong for Toyota is of keen interest within this community.  Like me, you’re probably trying to discern what really went wrong with a brand that was built on a reputation of bullet-proof quality and lean, just-in-time manufacturing techniques.



I would call your attention to a recent article appearing in The Economist, The machine that ran too hot.  This article makes note that there is widespread belief within the industry itself that Toyota is responsible for its own misfortunes because it established the goal of rapid sales growth and market share dominance beyond the capabilities of its supplier base to support such a goal.  To reinforce this argument, the article includes a background interview with James Womack, one of the authors of The Machine that Changed the World. Womack’s view was that setting aggressive sales targets was “totally irrelevant to any customer” and was “just driven by ego.” The consequent rapid expansion of Toyota’s supply chain “meant working with a lot of unfamiliar suppliers who didn’t have an understanding of Toyota culture.” You can read the article for yourself, but in my mind, the argument being made is that the “Toyota way” did not scale to the level of market growth desired. Toyota’s kiretsu model where supplier sole-sourcing of specific components, which fostered shared performance goals and mutual benefit supposedly broke down.



While there may be some truths to these observations from a pure process perspective, the argument as to what might have gone wrong is not complete.  In my view, two other factors should be considered in why the machine ran too hot. 



First, Toyota has had a cost problem, caused by the effects of nearly two years of global recession, coupled with some uncharacteristic business missteps in the developing markets such as China and India.  The company has suffered two straight years of unprecedented loses, and all sorts of management action teams were put in place to find creative ways to reduce cost.  In late December, Toyota actually requested the help of its key suppliers to meet a goal of reducing the cost of component parts by 30% over the next three years.  When cost becomes the primary concern of senior management, there tends to be a strong reluctance for anyone to bring unexpected news, such as a quality or reliability problem in the product. When Toyota’s preferred suppliers are told to reduce cost by as much as 30%, they know that such cuts will require significant product and process changes.  That is not in my definition, scaling for growth, but rather managing for cost.



Second, “the Toyota way” was always anchored on its emphasis on process simplicity.  Assembly-line and production replenishment controlled by simple kanban cards.  Factories operating as self-contained work-flow centers marching to a takt time cadence. All processes grounded by local feedback loops.  Often missing was an enterprise-scale information visibility system that could tie information together among multiple factories, suppliers and dealer networks in multiple geographies.



Something could well go wrong in a local production process, and a line worker has the authority to “pull the cord” to stop the line.  While the implications of that action are severe at the local level, they are remedied at that level. Visibility into a developing pattern of customer complaints related to unintended acceleration among sold vehicles has context well beyond singular plants or suppliers.  Visibility as to what might be going wrong in the supply chain, the subsequent context of the variance , and whom has the authority to intervene is a much broader decision-loop.  This extended visibility and need for timely decision-making is beyond the capability of local information loop and existing transactional systems.   Interestingly enough, the process did stop by the combined actions of Toyota senior management and the U.S. government, which has caused Toyota to have such negative visibility.



An important axiom in evaluating the most beneficial use of information technology is when complex barriers related to time, geography or complexities need to be overcome.  Technology can also save money by enabling more-timely and more informed decision making.  The need to reduce cost can sometimes be leveraged by the proper application of information technology to make more informed decisions.  Toyota’s misfortunes may have not only outstretched its supply and service chain, but also its ability to perform more informed decision-making at the enterprise level.



How do you view the Toyota dilemma? Are Toyota’s problems related to more than a conflict of goals and lack of information visibility across the extended supply and service chain?



Bob Ferrari

In January, Supply Chain Matters commented on evidence of large industry influencers embarking on the first steps toward what could ultimately become disintermediation within certain industry supply chains. At the time, we cited examples of Wal-Mart and Google embarking on significant programs to gain more control and influence over aspects within their respective supply and value-chains.



Another noteworthy evidence point of this trend is now occurring within the soft drink and beverages industry. For about thirty years, this industry has been operating on a business model developed around high margin carbonated beverages. The major brand owners, in this case Coke and Pepsi, control the marketing and sales of high concentration syrup  These brand owners in-turn distribute to franchise or independent bottlers who control the production, sales and distribution to various beverage channel customers. The brand owners hold major equity interests in their named franchise bottling groups, and the model leveraged high margins for the individual brand owners, while the more asset-intensive and operationally focused bottlers managed the lower-margin aspects of production and distribution. In the end, the brand owners gained value and control across the entire value-chain.



A major change began last April, when PepsiCo announced the acquisition of its two largest independent bottlers, Pepsi Bottling Group Inc., and PepsiAmericas Inc. for $7.8 billion. At the time of the announcement, PepsiCo Chairwoman and CEO Indra Nooyl made a very powerful argument that the business model had changed.  Whereas carbonated beverages previously drove the bulk of North American sales, alternative beverages such as flavored waters, juices and other drinks are now demonstrating higher sales growth. These newer products have different production, distribution and operating margin needs. Large retailers and grocers have also gained more bargaining power, and in previous commentary, we noted that Wal-Mart and others are consolidating major geographical procurement policies. This will mandate that bottlers and brand owners will be forced to also have a more timely and integrated response to selling and distribution needs of major customers.



Rival Coca-Cola Company had initially indicated that it did not intend to assume more control of bottling and distribution, but reflecting a change in strategy, Coke has now announced its intention to acquire the North America operations of Coca-Cola Enterprises Inc. for roughly $15 billion., At the close of the transaction it will have direct control of over 90 percent of the total North America volume.  Coca-Cola Enterprises will be re-structured to eventually gain control of European production and distribution.


It’s important to understand the logic made by each company’s senior management in articulating not only on the implications of the significant changes that are occurring in their various global markets, but also on the need for a re-look at supply chain capabilities and asset management in North America.  Whereas markets for carbonated beverages continue to grow at double-digit rates in China, India and Russia, new non-carbonated markets have emerged in North America.  That has driven the need for more flexibility in production, distribution and new product innovation cycles.  In my view, this is somewhat similar to when the computer industry, specifically Hewlett Packard, came to the realization that there was a need for significantly different supply chain delivery models to successfully support different margin products.


A fascinating and well-articulated discussion of these developments can be viewed in a recent CNBC television interview held with Indra Nooyl. PepsiCo Chairwoman, and the ‘Sage of Omaha’, Warren Buffett.  (Pre-warning- the video is over 20 minutes but very insightful and at times humorous in Warren’s political skills.) It seems that Warren not only has an equity stake and love of Coke products, but also loves his Cheetos and Doritos.



Over time the evolution and results achieved by these two global giants will prove to be the very interesting to observe.  As Ms. Nooyl astutely points out, PepsiCo being a diversified company with the likes of Frito-Lay fully understands the needs for both operational flexibility and efficiencies in production, distribution and logistics.  Coca-Cola on the other hand remains a global marketing giant. Both companies are about to gain a new appreciation of the need for geographical supply chain operational flexibility and smarter asset management.



Major economic downturns do indeed lead to new and different business models, and the implications for industry supply chains are starting to emerge.



It would be interesting for the community to share their observations of this emerging trend.  Do you feel that there are business merits to these approaches?  What about the impact on existing technology?


Bob Ferrari